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How to Study Economics

Agatha Christie wrote a series of mystery novels in which she challenged the reader to outwit her fictional heroine, Miss Jane Marple. By the end of the book, the reader has the same facts that Miss Marple has. But the facts do not speak for themselves. Rather it is Miss Marple's ability to look at those facts in a special way, to see something significant where most readers see nothing, which lets her solve the mystery.

Facts in economics, as in an Agatha Christie novel, need to be organized in some way before they can tell one anything. By themselves they are meaningless. Thus, the study of economics involves more than a memorization of facts. Economics tries to organize facts with its theory. Good theory tells us which facts are important and which are not, and what is cause and what is effect. The study of economics involves learning how to organize facts the way economists do.

People who do not understand economics still try to make sense of the world around them by trying to see pattern in the facts they observe. Often they use a simplistic "good-versus-bad" model. In a good-versus-bad model there are two conflicting groups who are classified as good people and bad people. These groups are usually involved in a zero-sum game: one person's gain is another's loss. Further, evil motives, possessed by the bad people, lead to bad results unless these people are in some way controlled. Good motives lead to good results.

An example of a good-versus-bad viewpoint was expressed at a town meeting of a small Indiana community during the winter of 1977. The meeting focused on the natural-gas shortages that the community was facing. One citizen declared that the town faced not an energy problem, but a pricing problem. He noted that several years previously there had been shortages of gasoline at 40 cents per gallon but no shortages at 60 cents. Therefore, he declared, there must have been a conspiracy at that time by oil companies to increase prices as there was now by gas producers. The events he observed do fit into a good-versus-bad framework. He saw a bad result. He saw a bad motive—the desire for profit seems to many people the same as greed or avarice. To connect motive and result, he inferred the existence of a conspiracy.

Although a good-versus-bad model is sometimes appropriate (especially in small-group situations), economists are very reluctant to use it. The economic model of supply and demand gives a more sophisticated interpretation of the gasoline shortage, one that is depersonalized and unemotional with no bad groups involved. This model suggests that in cases of shortages one should search for government regulation of prices. The good-versus-bad model does not suggest that such regulation is something one should look for. In fact there were price restrictions in place at the time, and such restrictions can lead to shortages. The good-versus-bad view of the world is attractive because we are able to understand the model at a very young age and because we see the model used so often: in fairy tales, in comic books, in movies, and in television shows, among other places. Because we know how to use this model, and because our culture discourages use of alternative explanations such as fate or mystery, it is easy to fall back to this model if we do not have a more sophisticated model to explain our world.

Economic issues affect us all and most people have opinions about them. These opinions may be based on a good-versus-bad view, some other non-economic framework, or simply slogans that are often repeated. Often the hardest problem students have in learning about how economists interpret the world is to unlearn their old, non-economic views.

Unlearning old ways of thinking can be difficult, as a well-known example illustrates. In the late 15th century Christopher Columbus believed that by sailing a relatively short distance to the West, he could reach Asia. Contrary to popular myth, it was Columbus, not his critics, who had an outdated view of the world.1 He believed that the earth was much smaller and that Asia was much larger than they actually are; his critics in their guesses were much closer to the truth.

Columbus made four trips to the Caribbean but he never realized the significance of what he had found. He died believing that he had found a short cut to the Far East. Rather than use the facts he had before him to alter and improve his ideas of world geography, he insisted on keeping his old views and trying to make the facts fit in.

Economic education involves learning to see reality from new perspectives. Sometimes these new perspectives may surprise or even shock you. But if you take the time to look at the reasoning behind these economic ways of looking at things, you will find that they consist of carefully-thought-out-and-applied common sense.

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1The falsehood that scholars in the middle ages believed that the earth was flat was popularized in the 1870s in the war for public opinion between science and religion of that day. See Steven Jay Gould, Rock of Ages (Ballentine, 1999) pp 111-124.

Copyright Robert Schenk